Gaping holes in the anti-money laundering systems of Australia's big banks are being exploited by crime groups to wash up to $5 million in drug cash a day, according to confidential briefings by federal and state policing agencies.
New details of police investigations reveal that the big four banks – Westpac, ANZ, NAB and CBA – have all been used by money laundering syndicates to launder drug funds offshore. .
Syndicates are also suspected to have infiltrated the franchises of mid-tier banks. Police have gathered intelligence that an outlaw bikie group is examining acquiring the franchise of a mid-tier bank, while the Bank of Queensland's Punchbowl branch in Sydney was closed after Mexican cartel drug money washed through its accounts in 2010.
An Australian Crime Commission "High Risk Funds" investigation, which was examining the movement of illicit cash to Balkan countries in 2012, identified a Bendigo Bank franchise that seemed to be involved.
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Convicted money launderer Ka Sing Lai Supplied
Anti-money laundering agency AUSTRAC's decision last month to launch legal action against the Commonwealth Bank lifted the lid on that bank's alleged lack of oversight of massive money flows.
But the latest revelations underscore what is an open secret in the law enforcement and banking communities: weak laws and questionable banking practices have enabled crime figures to open individual or company accounts or deposit funds with minimal or false identification, and quietly move millions of dollars. Ticking the boxes
Government officials said the public would be shocked to know the amount of drug money that was laundered on a daily basis, and the ease with which it finds its way out of Australia.
The former National Coordinator of the Commonwealth Asset Confiscation Taskforce, Nick McTaggart, who recently worked for AUSTRAC as a senior adviser, said the failure of major banks and other financial institutions to carry out basic due diligence likely placed them in breach of "know your customer" requirements.
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AUSTRAC's lawsuit repeatedly refers to other unnamed banks involved in the money laundering transactions. Cole Bennetts
Exacerbating the problem is the failure of financial institutions to share information with each other, or to access information from the federal government or police, including biometric, intelligence or tax data.
"Most financial institutions are just ticking the compliance boxes rather than doing the necessary due diligence," Mr McTaggart said.
"Technologies such as electronic funds transfer capability also present huge problems. Any criminal can get a company created today and bounce all the money into one account and then send it offshore and walk away from the company. No one will ask questions of the company for months."
He welcomed the Turnbull government's proposed toughening of company director identification laws and whistleblower provisions, but added: "The government can do more to assist".
Anti-money laundering expert John Chevis, who advises the UN Office of Drugs and Crime, said one key anti-money laundering provision had backfired.
Laws prohibit the banks from telling customers they have been reported to AUSTRAC. The provision is ostensibly designed to avoid tipping them off in the unlikely event police or AUSTRAC launch an inquiry.
What it meant, though, was that some banks continue to receive and shift drug funds despite making multiple AUSTRAC reports about the launderers' activity.
"This has turned an anti-money laundering law into a 'money laundering' law. There is at least one instance of the absurd situation of a single money launderer being reported over 100 times by a single bank for making 100 suspicious deposits," Mr Chevis said.
$29m through Westpac, CBA
In a Perth court in April this year, a fresh faced 30-year-old from Hong Kong, Ka Sing Lai, was jailed for 10 years for using Westpac and Commonwealth Bank accounts to launder at least $29 million in drug funds out of Australia.
Lai's operation was as simple as it was effective: he ferried money-runners to up to 10 Perth Westpac and CBA branches a day, depositing up to $500,000 into accounts opened by Australian front companies created by other Hong Kong nationals.
Lai made 163 bank transactions before he was arrested in late 2015. Eight months later, in August 2016, evidence emerged suggesting he was back in business.
A second Hong Kong national, Chi Ming To, who police first identified as a driver for Lai, was pulled over in NSW. When police searched his car, they found $550,000 cash in the boot. Despite being touted publicly by Justice Minister Michael Keenan as a major blow to organised crime, the arrest of Lai is privately described by senior police as a pyrrhic win in a fight in which they have been overwhelmed by money launderers' easy ability to evade banking controls. On bail, back to the banks
There's a familiar pattern to these events. On 18 November 2013, Hong Kong resident Peter Li flew into Sydney. He was granted a tourist visa and headed straight to The Star casino. In a bathroom, he was handed a yellow shopping bag police suspect was filled with hundreds of thousands of dollars in drug money.
Just over 24 hours later, Li entered the ANZ's Sydney CBD branch on York Street and opened two accounts. He listed the casino as his place of residence.
Then he handed over $50,000 in cash, asking for $1000 to be placed into one account and the remaining $49,000 into the second. Two days later, he shifted $20,000 from his second ANZ account into the first, into which he deposited a further $50,000 in cash.
He then flew to Perth and entered an ANZ branch, directing a teller to make two transfers of $35,000 from his ANZ accounts to two separate Honk Kong Bank accounts. Federal agents reconstructed these events after Customs officers found Li carrying $147,000 in cash when he attempted to leave Australia five days after he'd arrived in Sydney.
Li was charged with money laundering offences and released on bail on December 4, subject to a condition that he deposit no more than $2000 into any Australian bank account. Happy Valentine's Day
Ten weeks later, on February 14, 2014, Li walked into an ANZ branch in Sydney's CBD carrying a bag stuffed with suspected drug funds.
Over the next four hours, he made 10 deposits at various ANZ branches within a few kilometres of each other. After running out of CBD ANZ bank branches, Li changed his clothes and returned to the first branch he had visited. There, he made an eleventh deposit of $9500, just under the $10,000 amount that triggers a mandatory suspicious deposit notification to AUSTRAC.
Li's eleven deposits of $9,500 were made into the same ANZ account using a series of false names and phone numbers. On the same day, Li repeated this exercise at six NAB branches, depositing between $9000 and $9500 each time he entered the bank.
Under the current legislative regime, the banks have no clear obligation to demand verified identification, nor to quiz Li about his activities, nor talk to other banks about Li's conduct. The law prohibits banking staff from telling Li they considered his conduct suspicious enough to report to AUSTRAC.
So Li kept at it. A few days later, Li chose NAB and CBA branches to deposit multiple cash amounts under $10,000. After attempting to make his eleventh cash deposit into the same CBA account, a teller asked Li for his name. He refused to answer and the teller called the NSW police.
By the time of his arrest a few minutes later, Li had deposited $289,000 in drug funds. It had taken him just over ten hours over two days.
Chinese national Jun Yu Huang was an old hand at exploiting the banking system. In the 2000s, he had endured multiple stints in prison, including for setting up bank accounts with false IDs to commit fraud.
Police documents reveal that for five months in early 2013, Huang paid a Chinese woman to ferry large amounts of cash in green Woolworth's bags to "various banks" in Sydney's CBD. Huang then took over, using false IDs to set up accounts at money remitting businesses which specialise in moving funds offshore.
Huang used the NAB, Westpac, and CBA accounts of these remitters to deposit and move suspected drug cash to Asia. Over six weeks, Huang moved $3.2 million out of Australia, the bulk of which was moved through Westpac accounts.
McTaggart says if banks had conducted proper due diligence by demanding and verifying Huang's true identity and quizzing him about the source and purpose of the funds, it may have deterred him. Since Huang's arrest, the major banks have stopped allowing money remitters to use the banks' accounts to move funds offshore. But the banks still move funds themselves and are vulnerable to fake IDs and so called "cleanskins."
Then there is the case of 21 year-old Vietnamese national, Ahn Cat Chu.
Chu had been in Australia for just seven weeks on a student visa. When she was searched by police, they found 23 blue slips of paper revealing she had deposited $204,005 in just three hours at Westpac, ANZ, and CBA branches near Sydney's Chinatown. She had entered the banks multiple times in a highly suspicious fashion, depositing amounts under $10,000.
When police seized her mobile phone, they discovered a cell phone in Vietnam had been texting her instructions. Banks respond
Law enforcement sources said that while all banks could do far more to prevent money laundering, the CBA was targeted by AUSTRAC because its complacency and failure to address problems with its automatic cash deposit system was egregious.
In response to questions from Fairfax Media, NAB's chief risk officer David Gall said that despite extensive efforts to prevent money laundering, "people with bad intentions will always try to commit crime".
"That's why as a bank and an industry we have to always be vigilant and work with regulators, government and police to find new and smarter ways to prevent financial crime."
A spokesman for Westpac said the bank was investing heavily in "verifying the identity of our customers (for example, in the case of online banking, through the use of external data verification), monitoring the activities of those customers over time, reporting any suspicious matters detected to AUSTRAC, and terminating customer relationships where appropriate".
The Bendigo Bank said that the franchise which sent funds to the Balkan countries had been "appropriately monitored and any matters requiring reporting under legislation were submitted". The Bank of Queensland declined to comment on the allegation involving its now defunct Punchbowl branch. ANZ said anti-money laundering controls were effective.
Justice Minister Michael Keenan said the government had rigorous anti-money laundering measures in place and was continually working with the banking industry to strengthen them.
